AIMA responds to ESMA’s AIFMD consultation paper

Andrew Baker Opalesque Industry Update - The Alternative Investment Management Association
(AIMA), the global hedge fund association, has responded to a consultation by the
European Securities and Markets Authority (ESMA) on how the Alternative Investment
Fund Managers Directive (AIFMD) should be implemented.

ESMA, which is responsible for advising the European Commission on the implementing
measures for the AIFMD, sought feedback on a consultation paper it circulated in
July.

AIMA said many of ESMA’s draft proposals were “measured”, but several major areas of
concern remained, including proposals relating to depositaries, leverage, valuation,
transparency and liquidity management. So-called third country (non-EU) issues are
covered by a separate and on-going ESMA consultation exercise.

Where possible, AIMA has strived in its 111-page response to provide an economic
impact assessment of the Directive as well as detailed legal analysis.

For example, an AIMA study into the potential impact on depositaries found that,
under the most adverse scenario, the total cost to hedge funds of implementing the
more draconian options proposed in the paper could be more than US$6 billion.

AIMA said that those costs inevitably would be passed on to hedge fund investors
such as pension funds, charities, universities and insurers. The Directive could
lead to such high costs because depositaries would sharply increase their fees to
funds to compensate them for the strict liability they would be expected to absorb
for any losses incurred by unaffiliated sub-custodians which the former cannot
realistically control.

AIMA CEO Andrew Baker said: “We wish to congratulate ESMA on a job well done in
difficult circumstances and to a tight timetable. We hope they finalise the advice
in the independent and evidence-based spirit in which they produced this
consultation document.

“However, there remain a number of areas that continue to cause us difficulty, most
notably the proposals relating to depositaries. While some of the proposals made by
ESMA in this area are undoubtedly welcome, we are concerned that some of the options
on the table are so extreme that the eventual regime could end up being not only
wholly unworkable but also potentially dangerous by greatly increasing systemic
risk. We would urge ESMA to look again at these proposals and opt for the more
practicable options they put forward.”